Negative Interest Rates, COVID-19, and the Finances of Listed Euro Firms

Abstract

Aim: The paper measures the impact of negative interest rates on listed firms in the original euro zone countries. It also measures the impact of the first COVID-19 year.
 Design / research methods: The paper uses panel data to measure the influence of the short-term ECB deposit rate and the 10-years German bond yield on short-term and long-term firm variables. Cross section fixed effects are applied to first differences and dummy variables. For liquidity and non-liquid assets the effects are also measured for small and large companies, for sectors, and for countries.
 Conclusions / findings: Corporate liquidity ratios and creditor ratios decline when short-term ECB-rates fall. If ECB rates are negative, liquidity ratios are further reduced by 0.6 percentage points. Declining long-term German government bond yields increase non-liquid assets, while negative yields boost these assets by 4.5% extra. In the first COVID-19 year, the investments in non-liquid assets were 7.6% smaller, while liquidity ratios increased by 2.3 percentage points.
 Originality / value of the article: Papers on the influence of negative interest rates and of COVID-19 on European firms are unavailable. This makes the paper relevant for firm managers and policy makers and a benchmark for future research.
 Implications of the research: Because the issues addressed are new, further research is valuable. One may think of comparable studies for different countries. Many other suggestions for further research are given in the conclusions.